May 2, 2007

Simpson Manufacturing

From the Fool:

Some of the biggest gains in the stock market come when a well-run, shareholder-friendly company goes on sale because of a distressing industry outlook. Simpson Manufacturing, a best-of-breed building-products maker that has seen its shares slip by more than 20% in the last year, could be one of those successful turnarounds. A quick glance at Simpson's ownership profile and historical financials shows some attractive bits of information.

The company's biggest shareholder, Barclay Simpson, has also been its chairman since 1994. Since then, the company has grown earnings at an average rate of about 17% while posting consistent returns on equity in the mid- to high teens.

Of course, it's the current state of U.S. housing that has many investors spooked, and, to be fair, Simpson's recent results haven't been so hot. In the last quarter, sales declined 10% while net income dropped 31%.

But according to many in our CAPS community, Simpson's competitive advantages at home (building codes require its products in several states), coupled with attractive expansion opportunities abroad, will be more than enough to get it through the real estate storm -- making 2007 an opportune time to get in on the cheap. With an EV/EBITDA of around 7, a dividend yield of 1.20%, and an immaculate balance sheet with over $148 million in net cash, this is one insider-owned stock that you might want to check out on CAPS.

To get you started, here are three of the many helpful comments you'll find inside.

* Fellow Fool and CAPS All-Star TMFBreakerTAllan: "Simpson has an unbelievable moat in its products -- it is not only the name brand in its field, it is almost universally required in building specifications and is named in building codes in Texas and California. It is about to undergo expansion into international markets. The stock was affected by the housing construction slowdowns and is likely to outperform in the next 3-5 years."

* Another one of my colleagues, CAPS All-Star TMF Platoish1: "They are the leaders in their niches and continue to innovate with new product offerings. Construction slowdown will effect them to a certain degree, but probably not to the degree that the market has discounted. This is a strong niche business -- nice and boring with fragmented competition. I think Lynch would like them."

* Finally, goalie37 sums it up with a concise pitch: "Great financials, nice moat with builders and building codes specifically requiring their products, lots of inside ownership, no share dilution, little debt."

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